Last week, a federal court in the Southern District of New York dismissed a proposed class action lawsuit by a 401(k) plan sponsor against Morgan Stanley acting as the plan’s broker. At the heart of the claim were payments made by the record keeper to MS to be part of the broker dealer’s Alliance Partner program. The plaintiff alleged that even though MS was not acting as a fiduciary, the payment was a prohibited transaction since the fees received were unreasonable because MS did not do any work on the plan. A similar suit against the record keeper, ING, was dismissed last year.
While not ruling on whether the compensation was unreasonable, the court stated that the fees were disclosed under 408(b)(2) and that such payments by ING to MS were not de facto violations.
Legal eagle Tom Clark of FRA PlanTools and a former member of the Schlichter law firm noted that even though the case was dismissed, there are two lessons to be learned: First, you don’t have to be a fiduciary to be sued; and, second, make sure that you disclose all payments. It’s also noteworthy that the suit was brought by the plan sponsor, not the participants.
